With the upcoming government review planned for leasehold, the legal sector, in the form of the Law Society, Bold Legal Group, CILEx, SLC and the Conveyancing Association have joined forces to identify the changes that would be required to improve the leasehold conveyancing process and ongoing ownership.
We would now like to obtain your feedback on our proposals before we make representations on your behalf to the policy makers.
Below you will find our suggestions.
If you want to respond, please do so by noon on Tuesday 18th April 2017, using the survey link here. We would very much welcome the input of any and everyone with experience in the residential property industry.
LEASEHOLD REFORM PROPOSALS
1.1 Reasonable Fees for Administrative Activities
1.1.1 A requirements for reasonable fees for any administrative activity in any tenure.
1.1.2 A tariff of fees for quantifiable activities, managed and set by an appropriate organisation such as RICS.
1.2 Reasonable Timescales for Administrative Activities
1.2.1 Create obligations for the lease administrator to provide the information required for the sale, for example, as set out in the Leasehold Property Enquiry Form (LPE1)
1.2.2 Require all Lease Administrators, administering a long lease, to be registered on a register of Lease Administrators held by HMLR
1.2.3 Services and information to be provided within a reasonable period from receipt of payment eg 15 working days and if over that then provide free of charge.
1.2.4 If a required compliance certificate is not received within 10 working days of the Conveyancer complying with the requirements then the Conveyancer may complete a form at Land Registry to confirm that they have complied and Land Registry will register the amendment to the register. This will reduce the registration gap and save wasted time and resource for Land Registry, the conveyancer, the lender and the lease administrator.
1.3.1 Mandatory requirement for all Freehold Management or Lease Administrators to be part of a redress scheme
1.3.2 Create a fit for purpose redress scheme and mandate for the ombudsmen to be able to deal with complaints.
1.3.3 Land Registry Restrictions requiring evidence of compliance to be outlawed as this is not in respect of protection of an interest in land but simply a contractual obligation.
1.4 Unfair Lease Terms
1.4.1 No newbuild should have an initial lease term of less than 250 years.
1.4.2 Rent review clauses for flats and maisonettes should allow for no more than the RPI each 10 years. It is recognised that where there are shared facilities or maintenance requirements it is advantageous to keep the Landlord on the scene and provide them with a return. Otherwise there is a rise in absent or insolvent landlords which makes it hard to enforce covenants and sell properties.
1.4.3 Unless there is a genuine requirement for shared maintenance then leasehold houses should not be the subject of rent review clauses.
1.4.4 Exit or transfer fees should only be recoverable where they will be directly credited to the reserve fund for that block. No exit or transfer fee which goes in part or in whole to the landlord for no tangible benefit to the block in return should be enforceable.
1.4.5 An estimate of the amount of the exit fee should be stated on the end of each service charge demand to try to keep owners and beneficiaries up to date as to what it means to them.
1.4.6 Rent to be capped to the assured tenancy levels thus avoiding Ground 8 of Schedule 2 of the Housing Act 1988 in long leases. This should only apply to payments made as pure ground rent to the Landlord and exclude service charges or insurance premiums which might be treated or described by the lease as rent.
1.5 Overhaul of Tenure
1.5.1 Review of Commonhold Regulations to make a viable alternative with a view to outlaw leasehold and require Commonhold in newbuild and conversions when fit for purpose.
1.5.2 Simplification of the process to extend the lease and buy the freehold. Lease extensions cause delay and abortive transactions. Extending leases outside of the Act means that you are at the mercy of landlords who can charge above the going rate impose unreasonable terms (eg rent increase etc).
1.5.3 Provide a statutory right for personal representatives to extend a lease on behalf of a deceased estate.
1.5.4 The consideration for a lease extension should be determined by one pre-set formula set by RICS and based upon a percentage of the value of the land relevant to the number of years by which the lease is extended.
1.5.5 Review Right to Manage to make it easier for tenants to take the responsibility on if a landlord won’t do their bit. It should not be necessary to involve a managing agent until the First Tier Tribunal has approved the right to manage in principal. The current system is too expensive for most developments.
1.5.6 If a management company fails, the tenants should have the right to create a Right to Manage Management Company, failing which the Landlord should take on the obligations of the management company until a new company can be established.
1.5.7 The Section 20 notice levels to be reviewed in line with inflation and thereafter set each year by the RICS in line with inflation. This will reduce the administrative burden on managing agents which should reduce the cost of management.
1.5.8 Managed Freehold Property to be treated the same as leasehold in respect of the above points and the managed property form (FME1) to be mandatory.
1.6 Buildings Insurance
1.6.1 All landlords should be required by statute to insure comprehensively for the full reinstatement value (for which they may obtain a surveyor’s opinion every 5 years) and for the risks identified in the CML Handbook or its replacement. This will avoid the need for deeds of variation where there is a clause which is not compliant with the Lender’s Handbook which severely slow down transactions, increase costs and can lead to transactions falling through due to the inability of the buyer to satisfy the lender’s requirements.
1.6.2 Lease Administrator to obtain at least 3 quotes from rated insurers for insurance to achieve the best premium possible.
1.7 Management Regulation
1.7.1 Regulations should be created for the protection, management and calculation of the reserve fund on every leasehold or freehold management block.
1.7.2 Management charges should be limited to 10% of the service charges to which they relate, excluding payments into the reserve fund.
1.8 Marketing of Leasehold Properties
1.8.1 Anyone marketing a Leasehold Property should provide upfront information on:-
i) The remaining term of the lease
a) if 80-85 years or less that buyers will need to pay to extend the lease
b) if less than 80 that payment may be needed to increase the length of the lease subject to the requirements of a lender
ii) The amount of ground rent payable
iii) The nature of rent review clauses
iv) The amount of the annual service charge
v) A menu of the charges imposed by the lease administrator for services in connection with the sale, ongoing ownership and purchase of the property, including any exit or transfer fee payable.
vi) The existence of a lease clause requiring exit or transfer fees on disposal.
N.B. THE EQUIVALENT PROTECTIONS SHOULD BE APPLIED TO ESTATE RENT CHARGES, FREEHOLD MANAGEMENT SCHEMES AND COMMONHOLD